By Ketki Saxena
Investing.com – New research from RBC (TSX:RY) shows that Canada’s household debt servicing ratio hit a new record in Q3 2023, as previous increases from the Bank of Canada trickle their way through the economy.
The debt servicing ratio rose to 15.2% in Q3 from 15.1% in Q2
The report notes, “Canada’s household debt levels are high, and increases in interest rates continue to pass through to debt payments with a lag.”
“The household debt service ratio is already at record levels and will move higher as debt payments continue to rise alongside wobbly looking labour markets.”
In addition to the lagging impact of interest rates, the report also points to the wave of mortgage renewals due in the coming years as a reason that debt service ratios will continue to rise.
The report also points out that a weakening labour market will erode income growth, further challenging Canadians’ debt servicing capabilities.
Other key findings from the report show that Canadian household net-worth fell by $301.2 billion (-1.8%) quarter over quarter, pulling back due to a surge in bond yields and an underperformance in equity markets underperformed.
A decline in home prices also pressured net equity in real-estate, which fell by 1.7% as home prices edged lower.
Since its peak in Q2 2022, home equity is down 10.3%. For context, however, home equity remains 57% higher than pre-pandemic levels of Q4 2019.